Your dental clinic provides $3,000 exams for private pay patients and 1,000 exams for members of a union. Your fixed costs are $50,000 and your incremental cost is $40.
a. Private pay patients have a price elasticity of demand of -3. What do you charge them?
b. The union has negotiated a fee of $50. Is it profitable to treat members of the union?
c. What would happen to your profits if you stopped treating members of the union?
d. If the union negotiated a fee of $45 instead, what would you charge for private pay patients?
e. What does this tell you about cost shifting versus price discrimination?